CBO Projects $1.5 Trillion Deficits - and That's Being Optimistic

Donald Trump's tax cuts and spending increases are forecast to inflate the US deficit

Donald Trump's tax cuts and spending increases are forecast to inflate the US deficit

The independent financial scorekeeper said that the long-term USA debt, now more than US$ 21 trillion, could soar to more than US$ 33 trillion by 2028, with increasing annual deficits jumping from US$ 804 billion this year to US$ 1.5 trillion in a decade.

For 2018, the deficit is expected to top $800 billion, about $140 billion more than the shortfall previous year. Deficits would grow to $1.5 trillion by 2028 - and could exceed $2 trillion if the tax cuts are fully extended and if Washington doesn't cut spending. That's more than the $US665 billion shortfall at the end of fiscal 2017 and $US242 billion more than the CBO projected last (northern) summer.

In late March, President Trump signed a $1.3 trillion spending plan to fund the government through September.

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The news came on Monday as tax cuts and federal spending hikes took effect.

But those growth rates will not offset the deficits, which will "increase rapidly this year and over the next few years", then stabilise.

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The policy implications are clear: substantial entitlement reforms are, and always were, necessary if the U.S. were to have any hope at preventing ever-rising federal debt (as Brian Riedl indicates in this excellent post). Notably, and in keeping with the anti-intellectual spirit of the times, conservatives have not even bothered formulating a rationale for increasing the deficit during the peak of an economic expansion.

Republican tax cuts are expected, as leadership has repeatedly claimed, to grow the economy over the next two years.

Debt held by the public, which has doubled in the past 10 years as a percentage of gross domestic product (GDP), will approach 100 percent of GDP by 2028. "We have clear evidence that the McConnell-Ryan tax law is blowing a hole in our federal budget and contributing to higher costs for families accessing health through the marketplace".

Sen. James Lankford, R-Oklahoma, said the tax bill had helped stimulate growth, but that reining in the deficit would require slowing down increasing spending on social programs. That means the CBO has to assume the unlikely event of deep cuts to discretionary spending.

"Most of this growth is driven by consumer spending and business investment, but federal spending also contributes a significant amount this year", Hall said.

Worse, it could ultimately lead to an economic downturn and make a fiscal crisis more likely.

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